Last-Minute Tax Tips for 2023 and a Tax-Smart Guide for 2024
by Drew Overton | March 7, 2024 | Tax Planning
The tax filing deadline for most individual taxpayers is April 15, 2024. This looming date prompts many to consider last-minute strategies to reduce taxable income and maximize potential savings. Additionally, it’s an opportune time to prepare for the 2024 tax year. In this article, we will guide you through essential last minute ways to reduce taxable income & tax planning tips for the 2023 tax year as well as provide helpful tax planning steps for 2024.
Last-Minute Tax Deducations & Planning for 2023
Gather Your Tax Planning Documents
Before delving into specific strategies, it’s crucial to ensure that you have all the necessary documents to file your 2023 tax return accurately. This includes W-2s, 1099s, receipts for deductible expenses, and any other relevant financial documentation. Being organized can simplify the tax preparation process and help you identify potential opportunities for tax savings.
Should You File for an Extension?
If you find yourself running out of time or dealing with complex financial situations, consider filing for an extension. While this doesn’t grant an extension for paying any taxes owed, it provides additional time to file your return, potentially avoiding late-filing penalties. However, it’s important to note that interest may still accrue on any unpaid taxes during the extension period.
Contribute to Your Health Savings Account (HSA)
For those with a HSA, contributing to it before the April 15, 2024 deadline can provide a valuable deduction. HSAs are tax-advantaged accounts that allow individuals with high-deductible health plans to save for qualified medical expenses. Contributions made before the deadline can be deducted from your taxable income, reducing your overall tax liability.
Contribute to Your Individual Retirement Account (IRA)
Similarly, contributing to your IRA by April 15, 2024 can offer potential tax benefits. IRAs provide a tax-advantaged way to save for retirement. Contributions to a Traditional IRA may be deductible, reducing your taxable income for the year. It’s essential to be aware of the contribution limits and eligibility criteria for IRAs.
Tax-Smart Planning for 2024
Retirement Savings
Planning for the current tax year involves making decisions that can impact your financial future. One key aspect is retirement savings. Maximize your contributions to retirement accounts, such as 401(k)s and IRAs. The more you contribute, the greater your potential tax benefits and the stronger your financial position in retirement. If you are eligible to contribute to an employer-sponsored retirement plan, ensure that you are receiving the employer match. Depending on your current tax bracket relative to your estimated future tax bracket in retirement, decide between pre-tax or Roth contributions.
Education Savings
If you have children or are planning for education, consider utilizing tax-advantaged education savings accounts. 529 plans, for example, offer tax-free growth on investments when used for qualified education expenses. Contributing to these plans can provide valuable tax benefits and help ease the financial burden of education expenses. You may also qualify for a Virginia state tax deduction for contributions if certain conditions are met.
Be Aware of Tax Credits
Stay informed about available tax credits that can directly reduce your tax liability. This includes the Child Tax Credit, Earned Income Tax Credit, and various education-related credits. Understanding the eligibility criteria and requirements for these credits can ensure you claim all the benefits to which you are entitled.
Check Your Withholdings
Review your withholding allowances to ensure they align with your financial situation. Adjusting your withholding can help prevent overpaying or underpaying taxes throughout the year. Completing a W-4 form can guide your employer on the appropriate amount to withhold from your paycheck, with the goal of avoiding a large tax bill and a significant refund.
As the deadline for 2023 tax filing approaches, it’s crucial to take advantage of last-minute opportunities to reduce your tax liability. Additionally, initiating your tax planning for 2024 early can set the stage for a financially successful year. If you have any questions or need personalized assistance with your tax planning, don’t hesitate to reach out to us at (757) 436-1122. Our experienced team of wealth advisors are here to help you navigate the complexities of tax planning and achieve your financial goals.